Weekly Market Report: February 23rd, 2023

A President’s Day holiday-shortened trading week with a relatively light economic calendar looked to the ‘AI tipping point’ narrative, encouraging earnings reports, and a continued healthy economic growth backdrop taking U.S. (and Japan!) equity markets to fresh record highs. The S&P 500 closed up 1.7% (6.7% ytd) with non-U.S. markets following suit in both developed +1.9% (2.7% ytd) and emerging +1.8% (1.0% ytd) markets. Bond yields were relatively flat with the 10yr falling 4bps to 4.26% while commodities (-1.4%) and the USD (-0.34%) were down slightly.

Market Anecdotes

• Early week market consolidation gave way to an AI-related earnings jolt, pushing the S&P 500 up 2% and the NASDAQ up 3%, both to record highs – something we haven’t seen since March 2000.
• A Bespoke look back at major technology releases in light of the AI momentum led to an analysis of eight ‘AI’ ETFs which contained 67 S&P 500 companies therein and several constructive performance illustrations going back to the ChatGPT release on 11/30/22.
• Several Fed speaking engagements and FOMC and ECB meeting minutes released last week served to reinforce further hawkish repricing of rate cut expectations which have already fallen from seven rate cuts to approximately three for the year.
• An article in Bloomberg highlighting an Attom report on the looming issues across commercial real estate showed January foreclosures up 17% MOM and twice as many as January 2023. Meanwhile residential mortgage rates have risen three consecutive weeks, now back to 7.3%.
• The JPM CEO disclosed a significant ‘estate planning’ move last week in selling $150mm of JPM stock, which based on his prior uncanny timing, investors may be well served to take note.
• The PBOC announced another surprise policy decision, delivering a record cut to a key mortgage reference lending rate. Markets again were largely unimpressed.
• BCA’s FX Strategists have modeled the USD as the most overvalued currency across all developed and emerging currencies globally at +19.1%.

Economic Release Highlights

• January YOY headline and core CPI registered (3.1% vs 3.0%) and (3.9% v 3.7%) respectively with MOM readings of (0.3% v 0.2%) and (0.4% v 0.3%).
• January YOY headline and core PPI registered (0.9% v 0.7%) and (2.0% v 1.7%) respectively with MOM readings of (0.3% v 0.1%) and (0.5% v 0.1%).
• Retails Sales in January fell well short of forecast (-0.8% v -0.1%). Ex-Vehicles (-0.6% v 0.2%) and Ex-Vehicles & Gas (-0.5% v 0.2%) also missed.
• Industrial Production in January missed the spot forecast (-0.1% v 0.2%) as did Manufacturing Output (-0.5% v -0.1%) and Capacity Utilization (78.5% v 78.8%) also fell short.
• January’s NFIB Small Business Optimism Index declined and came in below consensus forecast (89.9 v 92.4).
• UofM Consumer Sentiment reading for January registered 79.6, in line with the consensus forecast of 80.0. One year inflation expectation increased from 2.9% to 3.0%.
• The Housing Market Index for February came in above forecast (48 v 46).
• Housing Starts (1.331M) and Permits (1.470M) in January both came in below the spot consensus and the forecast range.

Weekly Market Report: February 16th, 2023

Markets last week took in more fourth quarter earnings reports and a relatively heavy economic calendar. Bond markets couldn’t look past the warm CPI and PPI reports, pushing yields up 10-15 bps as questions surrounding the disinflation trend and related monetary policy implications surfaced. Equity markets were mixed as leading technology names took a breather while small caps and value stocks enjoyed a rare bout of leadership. Developed international (+1%) and emerging international (+1.26%) both outpaced the S&P 500 (-0.4%) on the week. Commodity markets were flat despite oil rallying 3%, closing just shy of $80, and the USD was relatively flat.

Market Anecdotes

• Last week’s inflation report sparked bond yields and more questions surrounding the ‘last leg’ or final stages of getting inflation back to the Fed’s target.
• Powell’s emphasis on ‘supercore’ CPI, which has risen (YOY) three straight months, contributed to traders pushing rate cuts further out into the future in a higher for longer narrative.
• With the market being talked out of the 7 rate cuts priced in on January 12th to 4 rate cuts most recently, it begs the question, what exactly drove equity markets 4% higher over this timeframe?
• Fed speaking engagements last week continued to push back on market rate cut expectations including Bostic, Daley, and Barkin noting ‘messy’ inflation data, ‘more work to do’, and expectations for two (not four) cuts this year.
• In an eyebrow raising feat, Nvidia overtook Alphabet from a market cap standpoint last week despite the former’s net income being greater than the latter’s revenue. A simple regression of P/E multiples and subsequent five-year returns reminds us that valuations do matter.
• Fourth quarter earnings season, with 80% of the S&P 500 reported, has a beat rate of 75% and beat margin of 3.9% alongside blended earnings growth of 3.2% and revenue growth of 4.0%.

Economic Release Highlights

• January YOY headline and core CPI registered (3.1% vs 3.0%) and (3.9% v 3.7%) respectively with MOM readings of (0.3% v 0.2%) and (0.4% v 0.3%).
• January YOY headline and core PPI registered (0.9% v 0.7%) and (2.0% v 1.7%) respectively with MOM readings of (0.3% v 0.1%) and (0.5% v 0.1%).
• Retails Sales in January fell well short of forecast (-0.8% v -0.1%). Ex-Vehicles (-0.6% v 0.2%) and Ex-Vehicles & Gas (-0.5% v 0.2%) also missed.
• Industrial Production in January missed the spot forecast (-0.1% v 0.2%) as did Manufacturing Output (-0.5% v -0.1%) and Capacity Utilization (78.5% v 78.8%) also fell short.
• January’s NFIB Small Business Optimism Index declined and came in below consensus forecast (89.9 v 92.4).
• UofM Consumer Sentiment reading for January registered 79.6, in line with the consensus forecast of 80.0. One year inflation expectation increased from 2.9% to 3.0%.
• The Housing Market Index for February came in above forecast (48 v 46).
• Housing Starts (1.331M) and Permits (1.470M) in January both came in below the spot consensus and the forecast range.

Weekly Market Report: February 9th, 2023

A light economic calendar last week allowed markets to focus on a full roster of fourth quarter earnings reports and a heavy dose of Fed speak with twelve speaking engagements on the calendar. In a micro over macro week, equity markets pushed to new record highs with the S&P 500 (+1.4%) closing above 5,000 for the first time. Developed markets stayed relatively flat (+0.2%) while emerging markets (+2.4%) benefited from rumors of additional stimulus measures percolating in China which rallied 4.4% on the week. Bond yields have latched onto the sustained growth narrative, rising 10-15 bps in what has been a rough start to 2024. The USD added marginally (+0.18%) to the strength it has seen so far in 2024 (+2.74%) and oil clawed back most of last week’s losses, rising 6.3% for the week, now up 7.2% in 2024.

Market Anecdotes

• The S&P 500, up 14 of the past 15 weeks, closed above the 5,000 mark for the first time and set a new record high giving financial media types an easy storyline this week. An increasingly narrow rally at the top end of the index is giving some investors pause.
• David Einhorn pointed out some obvious concerns surrounding the growth of passive (now 53% of U.S. AUM) and algorithmic investing noting “Passive investors have no opinion about value. They just assume everybody else has done the work” and “Algos have an opinion about price, like what is the price going to be in 15 minutes?”
• S&P 500 earnings results continued to improve from the difficult start with blended earnings growth up to 2.9% with a beat rate of 75% and a beat margin of 3.8%.
• Rumblings at NYCB have investors worried about regional banks but the balance sheet looks notably different from SVB and FRB situations last March but the slow moving CRE trainwreck most definitely has more chapters to play out.
• Bespoke noted the two day surge in the 10yr bond yields (+28.4 bps) following the January jobs report is the second largest of the current cycle with the largest being the yield spike leading up to a surprise 75 bps Fed rate hike in June 2022.
• The FOMC speaking circuit last week pushed back on both timing and scope of market rate cut expectations while reiterating a patient but ultimately easing bias. ISM Services prices paid last week are worth noting with the disinflation trend a key lynchpin for risk assets looking forward.
• Jobs and PMI readings have taken the most recent Atlanta Fed GDPNow model estimate of 1Q growth up from 3.0% to 3.4%.
• Last week’s annual BLS CPI revisions, which Fed Governor Waller highlighted the importance of, revealed minor downward revisions to headline Oct-Dec readings but core readings were unchanged.
• Hulbert Ratings illustrated a clear case of mean reversion with high yield credit spreads as tight as they are today (3.38%) showing the coming 12 or 24 month change favors a clear gap higher.
• The January senior loan officer opinion survey showed banks continuing to tighten lending standards and terms, more in line with economic downtrends than the uptrend we’re seeing.
• News of President Xi Jinping’s intent to focus on economic and financial market challenges sprouted some optimism in China for potential government assistance and regulatory measures.

Economic Release Highlights

• January ISM Services Index beat consensus (53.4 vs 52.1) and registered above the high end of
• the forecast range (51.5 – 53.0).
• Initial (weekly) jobless claims were relatively in line at 218,000, moving the 4-week moving average to 212,000.

Weekly Market Report: January 26th, 2023

Last week, markets took in a healthy dose of both economic and earnings reports, moving equity markets higher globally. U.S. large caps were up 1% to a new record high while small caps added 1.75%. Participation was relatively broad, led by the energy and communication services sectors. International developed (+1.5%) and emerging (+1.3%) outperformed thanks in part to a bounce in Chinese equities. Interest rates were relatively unchanged despite the encouraging economic news, but commodity markets rallied sharply with energy markets leading the way as WTI oil surged 6.3% to $78.01 on the week.

Market Anecdotes

• Central banks in or beginning easing cycles alongside healthy economic indications (GDP, labor, inflation) have overshadowed a sub-optimal start to fourth quarter earnings season.
• The FOMC meeting on tap this week is focused on quantitative risk assessment with no policy announcements expected. Markets have been walking back 2024 rate cut expectations (from 6 to 5) but resilient growth and consumption may still challenge that further.
• With 25% of S&P 500 companies reported, the beat rate is 69% and beat magnitude is -5.3% with blended earnings of -1.4% and revenue growth of 3.2%. The 12-month forward P/E multiple is 20x.
• Chinese policy makers, responding in part to nearly $6t in losses across mainland and Hong Kong equity markets since February 2021, announced stimulus headlines last week including a PBoC 0.5% RRR rate cut and a possible CNY 2t stock market rescue package.
• BCA’s Geopolitical team’s annual look at low probability, high impact market risks include a Chinese recession, oil shock in Iran, and military conflicts with Russia/East Asia.
• Despite higher interest rates pressuring corporate debt coverage levels, leveraged loan default rates have remained below historical averages due to a significant increase in ‘distressed exchanges’ which include out of court restructurings, exchanges, and sub-par paybacks.
• The spot Bitcoin ETFs launched on January 11th have thus far been a “sell the news” illustration, down over 20% while equity markets have grinded higher.
• To put a number on higher mortgage rates, a mortgage loan today is over 2% higher than any time since 2011 which equates to $385/mo on a $300,000 conforming 30-year loan.

Economic Release Highlights

• The pace of headline (core) PCE inflation fell in November registering 2.6% (2.9%) YOY and MOM readings of 0.2% (0.2%), both generally in line with consensus. Personal Consumption exceeded forecasts (0.7% vs 0.4%) and Personal Income growth of 0.3% was in line.
• The first estimate of 4Q GDP came in well above consensus (3.3% vs 2.0%) and the high end of the forecast range (1.3% – 2.5%).
• Personal Consumption Expenditures of 2.8% in 4Q cooled slightly from the 3Q rate of 3.1% but beat the spot forecast of 2.5% and above the high end of forecast range (2.4% – 2.6%).
• January U.S. PMI (C, M, S) registered 52.3, 50.3, 52.9 where both services and manufacturing readings came in well above consensus forecast and the high end of their respective ranges.
• January non-U.S. PMI (C, M, S) last week included relatively constructive readings in the Eurozone (47.9, 46.6, 48.4) and UK (52.5, 47.3, 53.8).
• Durable Goods Orders were mixed in December with a miss on New Orders (0% vs 1%), a beat on ex-Transportation (0.6% vs 0.2%), and a beat on Core Capital Goods (0.3% vs -0.2%).
• New Home Sales in December of 664k came in slightly ahead of the spot consensus forecast of 660k and increased slightly over the prior month’s 615k pace. Pending Home Sales jumped 8.3% on the month, well ahead of the 1.3% spot consensus and 0.7%-3.9% forecast range.

Weekly Market Report: January 19th, 2023

Markets took in a good deal of central bank pushback and some firmer economic data last week very much in stride. A tech and shadow tech rally pushed the S&P 500 to a new record high despite yields drifting higher in two of the past three weeks. The S&P 500 climbed 1.17% while international developed (-1.1%) and emerging (-1.7%) both declined. Bond yields were up across the curve with the belly (2s, 3s, 5s) up over 25 bps. The USD strengthened 0.86%, up 1.9% to begin the year, while commodity markets and WTI oil ($73.41) were both relatively flat on the week.

Market Anecdotes

• The S&P 500, which has been up 11 of the past 12 weeks, marked a new all-time high for the first time since January 3, 2022 last week. Interest rate relief, disinflation/growth outlooks, the AI/”Mag 7” rally, and multiple expansion explain most of the recent move.
• Metrics indicating softening demand for labor (more of a leading indicator), would include declining job openings, hiring rates, temporary employment, business survey hiring intentions, quits rate, and average hours worked – all seemingly flashing yellow as we look into 2024.
• A still robust liquidity backdrop provides a constructive backdrop for risk assets and can also mitigate risks of protracted downturns as liquidity sometimes serves as a support mechanism in market dislocations.
• Nine FOMC speaking engagements last week in advance of the month end FOMC meeting served to cool dovish market expectations, taking rate cut probabilities down to 46% for the upcoming March 20th meeting and now pricing 140 bps of easing for the year, down from nearly 175 bps.
• Fourth quarter earnings are off to a subpar start with a beat rate of 62%, a beat magnitude of -18.1%, and a blended -1.7% earnings result. Blended revenues are growing at 2.9%. Misses at this early stage in the financial sector account for the weak start.
• A Goldman research note highlighted how the record lack of financial (rate) incentive to refi outstanding mortgages is translating to anemic existing home sales albeit in what can only be categorized as a resilient U.S. housing market.
• With all the focus on global shipping choke points, Peterson Institute for International Economics published an interesting paper on long term trends in global trade cycles and globalization.
• BCA noted the fall in oil prices in the back half of 2023 can be partially attributed to an 880k b/d surge in U.S. production to record high levels thanks to a flood of DUC shale wells coming online.

Economic Release Highlights

• December Retail Sales beat on headline (0.6% vs 0.4%), Ex-Vehicles (0.4% vs 0.2%), and Ex-Vehicles & Gas (0.6% vs 0.3%).
• Consumer Sentiment Index in January improved from 69.7 to 78.8, above the spot forecast 69.2 and consensus range 66.5-72.5.
• Housing Market Index climbed in January to 44 from prior month reading of 37 and ahead of consensus forecast of 38.
• December Housing Starts (1.460M vs 1.425M) and Permits (1.495M vs 1.478M) both came in slightly ahead of forecasts. Existing Home Sales of 3.78M were down 1% MOM and -6.2% YOY.
• Industrial Production in December grew 0.1%, slightly ahead of the -0.1% consensus estimate.

Weekly Market Report: January 12th, 2023

Markets were relatively firm last week, in what was the first full trading week of the year. Key markers last week included the beginning of the 4Q earnings season, geopolitical developments (Yemen, Taiwan), and a relatively light economic calendar including December inflation data. Equity markets looked past a lackluster start to earnings and a hotter than expected December inflation reading. U.S. (+1.8%) and developed international (+1.2%) posted gains while emerging markets (-0.6%) were weighed down by China which fell 2.1%. Bond yields declined pushing the 10yr UST yield back below 4% while the USD and commodity markets were both relatively flat on the week.

Market Anecdotes

• A great series of charts from Bespoke takes a long-term look at the U.S. stock market, reminding us all that a disciplined and resilient ‘get invested stay invested’ strategy is the most sound approach to equity market investing.
• Market priced probabilities for a March rate cut stands at 75% with a soft PPI working to offset the firm CPI last week. Meanwhile, the labor market remains strong with weekly claims last week (202k) falling to their lowest mark since October.
• Fourth quarter earnings season kicked off last week with a relatively low bar on S&P 500 consensus earnings estimate of 1.3%. The larger issue is likely surrounding forward guidance and the stability of the 12% consensus earnings estimate for full calendar 2024.
• Following an early week SEC twitter hack (and premature crypto ETF announcement), the SEC approved 11 spot Bitcoin ETFs and a BitMEX Research estimated $523mm of inflows in 3 days.
•  A Bloomberg article last week highlighted an IMF report noting global governments will be selling a net. $2.1t in new bonds to finance deficit funding of government operations, a 7% increase over 2023. Sadly, the U.S. is furthest in the crowd from balancing its checkbook.
• The U.S. Senate is likely to move forward with a CR this week to avoid a looming January 19th government shutdown funding deadline.
• Attacks in Yemen (Bab-el-Mandeb Strait) have reverberated north to the Suez Canal where traffic is down considerably. Unfortunately, drought conditions have forced the Panama Canal also to operate well below capacity with supply chains and global logistics again being challenged.
• Taiwan elected VP and DPP candidate Lai Ching-te President surely to the dismay of Chinese officials who refer to Lai as a “separatist”. Tensions are expected to remain high.
• Year-end data from China suggests improving demand conditions (import/export data) but weak private sector credit demand and a clear deflationary trend point to a tepid growth backdrop.

Economic Release Highlights

• December headline and core CPI registered 3.4% and 3.9% respectively while MOM readings both came in at 0.3%.
• December headline and core PPI registered 1.0% and 1.8% respectively with MOM readings of -0.1% and 0%.
• December NFIB Small Business Optimism Index improved slightly to 91.6, beating the spot consensus forecast of 90.6.

Weekly Market Report: January 5th, 2023

Markets went back to work in the first week of 2024 with a bit of consolidation, snapping a nine-week winning streak, following a robust Santa Claus rally to end the year. Drivers last week centered around the release of December FOMC minutes, a notable move higher in bond yields, and a fairly heavy slate of economic
reports. U.S. equity markets started the year down approximately 1.75% (R3000) while developed (-1.5%) and emerging (-2%) equity markets followed suit. Interest rates backed up across the curve pushing the 10yr UST yield back up over the key psychological 4% threshold. The USD and commodity markets were up approximately 1% with the latter helped by a rally across all energy contracts, leaving WTI back up to $73.81.

Market Anecdotes

• We see largely the same set of questions on the landscape including the outlook for growth, monetary policy trajectory, higher interest rate implications, and health of the labor market/consumer.
• A touch of yesterday always informs tomorrow so before heading full steam into 2024, a clear-eyed look back at 2023 capital markets and key dynamics seems to make good sense.
• A research note from Bianco Research highlighted the unprecedented 40 year easing of financial conditions as a big driver (and reflection) of the substantial stock and bond market rallies that occurred in the last two months of 2023.
• Market expectations of 175 bps in cuts in 2024 beginning in March with a backdrop of 3.7% unemployment, respectable GDP growth, and a still healthy 3.2% core PCE might be a little offside but if not, it may spark growth, and unfortunately, a new bout of inflation.
• As opposed to the synchronized global central bank hiking cycle, the cutting cycle is expected to differ but the U.S., Euro area, U.K., and Canada will be similar with OIS markets currently expecting cuts beginning in Q2 and 5 to 6 cuts priced in by the end of 2024 across the board.
• Fourth quarter earnings season kicks off next week with earnings growth consensus of 1.3%, significantly below (downward revisions) the 8.1% consensus 4Q estimate on September 30th. Full year 2024 earnings expectations are around 12%, which many feel is lofty.
• Red Sea attacks by Iranian proxies in Yemen, the Houthis, have the potential to spark another surge in energy prices with just under 9% of global oil and refined products being transported through the Red Sea.
•  A positive economic consensus for 2024 has grown markedly in the past two months but it seems mostly limited to the U.S. with other developed economies being revised downward.

Economic Release Highlights

• December payrolls rose 216,000, more than the 164,000 consensus and above the forecast range (100,000- 200,000). The unemployment rate held at 3.7%. Labor force participation rate fell notably to 62.5%. Average Hourly Earnings were +0.4% MOM and +4.1% YOY.
• The JOLT Survey for November showed job openings marginally lower to 8.790M.
• U.S. ISM Manufacturing Index for December remained in contraction at 47.4, generally in line with consensus and a marginal improvement over the prior month. Final December U.S. Manufacturing PMI was revised slightly lower from 48.2 to 47.9.
• U.S. ISM Services Index for December registered 50.6, well below consensus and last month’s reading which were both 52.7.
• December non-U.S. PMI readings (C, M, S) for China (52.6, 50.8, 52.9), India, (58.5, 54.9, 59.0), U.K. (52.1, 46.2, 53.4), and Eurozone (47.6, 44.4, 48.8) all blended to a Global reading of (51.0, 49.0, 51.6) – a sixteenth consecutive Manufacturing PMI decline.
• November Factory Orders came in within consensus forecast range at +2.6% following a 3.4% decline the prior month.

Weekly Market Report: December 29th, 2023

As is typically the case, the final week of the year came with a very light economic calendar and financial market volume. The lack of material catalysts last week translated to very little movement, but we did put a bow on December, the fourth quarter, and 2023. The S&P 500 notched a ninth consecutive weekly gain to finish the year up 26%. Emerging and developed international equity markets were also up slightly on the week, finishing up 9% and 19% respectively for the year. Bond yields were generally flat in the last week of the year, but the year saw the yield curve maintain and become further inverted, leaving intermediate term yields lower, the long end flat, and the short end notably higher thanks to Fed policy. Commodity markets were down 1.5% in the last week of the year thanks to declining energy prices which closed the year down double digits.

Market Anecdotes

• A quick recap of market events and financial markets in 2023 shows strong (albeit narrow) global equity returns, very pedestrian bond market returns, a double-digit negative year for commodities, and a slight down year for the USD.
• In typical year-end fashion, crystal balls looking at 2024 abound with S&P forecasts ranging from -12% to +12%, mostly clustered in the 0%-6% range. Meanwhile economists have flipped from overwhelmingly predicting recession in 2023 to a soft/no landing outlook for 2024.
• The 3m/10yr yield curve slope finished the year significantly more inverted than where it began, a condition it’s been in for well over a year. Meanwhile, the 2yr/10yr slope finished the year slightly less inverted than it began.
• A WSJ article highlighted declining quality of survey-based data from households and establishments thanks to a greater societal migration away from the telephone and a survey ‘fatigued’ public.
• Politics and geopolitics are front and center as we enter 2024 with Middle East conflict, government funding cliffs, Taiwan election, and several critical Supreme Court decisions. A research note from SSGA suggests that if you’re feeling like international armed conflicts are on the rise, it’s because they are.

Economic Release Highlights

• The Case Shiller Home Price Index for October rose 0.6% in October, up 4.9% YOY.
• Pending Home Sales in November were flat, less than the 0.8% consensus expectation.

Weekly Market Report: December 15th, 2023

A dovish FOMC pivot, moderating inflation, and a generally in line slate of economic reports pushed equity markets to another strong week of gains. The yield curve flattened and yields again fell sharply, leaving the 10yr yield below the 4% level. The USD weakened notably (-1.4%) as other central bank narratives weighed in a bit more hawkish than the Fed. Commodities were up 1% on the back of a rally in industrial metals while WTI oil was relatively flat, closing at $71.43, down 11.9% on the year and down 24.3% since its 9/27/23 peak for the year.

Market Anecdotes

• Seven consecutive up weeks on the S&P 500, something we’ve only seen 10 other times since 1990, led Goldman Sachs to note the market has reached its most overbought level (RSI >70) in over a decade. Forty- six percent of stocks are trading with a 14-day RSI>70, the most in 30 years.
• Last week’s FOMC meeting left rates unchanged as expected at 5.25%-5.50% with markets focused on the SEP, dot plot, and Powell’s remarks. While the statement continued to indicate the Fed is prepared to hike further, Powell’s remarks made clear they are at or near the peak.
• U.S. monetary policy focus has been changed to the timing of rate cuts. A look back at the historical span between the last rate hike and initial rate cut shows a range of 4 to 15 months, with an average of 8.
• While markets are certainly in celebration mode, the prospect of sticky inflation or second wave inflation remains a tangible risk as evidenced by near term moving averages of both the Cleveland and Atlanta Fed. inflation models.
• After 11 consecutive hikes and stepping aside at their October meeting, the ECB again kept rates on hold at 4.5%. 14 successive hikes and two pauses saw the BoE again leave rates at 5.25% as did the SNB (1.75%).
• The sharp decline in bond yields comes with several constructive implications including lower cost of debt across both the public and private sector, a tailwind for equity market valuations, and increased home buying activity which can spur factory orders and the manufacturing sector.
• The unemployment rate fell in November from 3.9% to 3.7% warranting a check in on Sahm rule and Joshi rule recession indicators with the latter rising from 0.153 to 0.169, closing in on the key 0.20 threshold.

Economic Release Highlights

• Headline and core CPI rose in November 3.1% and 4.0% with MOM readings of 0.1% and 0.3% respectively, all relatively in line with consensus forecasts.
• U.S. PMI (C, M, S) saw manufacturing come up short, but services exceeded their respective forecasts registering (51.0, 48.2, 51.3) in the December flash.
• Eurozone and U.K. PMIs (C, M, S) for the December flash registered (47.0, 44.2, 48.1) and (51.7, 46.4, 52.7) respectively.
• November Retail Sales grew 0.3%, well ahead of the spot consensus -0.1%. Both ex-vehicles (0.2% vs -0.1%) and ex-vehicles & gas (0.6% vs 0.1%) beat forecasts as well.
• NFIB Small Business Optimism Index registered 90.6, generally in line with forecasts but still below the long- term historical average of 98.
• Industrial Production grew 0.2% slightly below 0.3% forecasts and toward the bottom of the 0.1%-0.7% forecast range.

Weekly Market Report: December 8th, 2023

The S&P 500 and NASDAQ delivered a sixth consecutive weekly gain, both marking fresh highs on the year. Economic reports showing a still resilient U.S. labor market, some AI hype, and a healthy uptick in consumer sentiment were key drivers last week where soft landing and peak Fed narratives remained firmly in place. Last week saw bond yields break a streak of six consecutive weekly declines with the curve flattening and yields rising 10-15bps in the belly. Oil prices (and commodities) maintained their downward momentum, closing the week just above $71/bbl while the USD strengthened 0.71%.

Market Anecdotes

• As we approach year-end, a quick look at stock and bond market returns should make investors feel relatively jolly as we head into the end of the year, particularly as it compares to last year.
• An article by Robert Armstrong in the FT connects the November risk asset rally to soft landing/peak Fed narratives but also very much to the significant increase in liquidity from the NY Fed RRP which Bianco Research estimates accounts for more added liquidity than QT has withdrawn.
• A look at Chinese stocks versus U.S. or global stocks reminds investors of the many issues facing the country including real estate excess, timid stimulus, elevated debt levels, and overall deflation which does seem to be translating to a balance sheet recession dynamic in China.
• The healthy jobs report last week pulled bond yields higher and expectations of Fed rate cuts in 2024 lower but details show the number of job losers actually rose but was offset by an increase in people re-entering the job market (participation rate).
• BCA noted an interesting disconnect between copper prices and cyclical vs defensive equity dynamics where copper has declined on the year, but cyclicals have outperformed defensives.
• Prevailing ‘soft landing’ optimism among economists and strategists seems to be shared by sell side analysts, currently forecasting 2024 earnings and revenue growth of 10.4% and 4.75%, respectively, with four consecutive quarters of positive earnings growth.

Economic Release Highlights

• The November Jobs Report showed 199,000 new jobs, slightly better than the 180,000 consensus estimate. The unemployment rate fell from 3.9% to 3.7%. The participation rate increased to 62.8% and average hourly earnings of 0.4% MOM and 4% YOY were in line with forecasts.
• The November ISM Services Index registered 52.7, slightly higher than consensus forecast of 52.4 and an improvement relative to October’s 51.8.
• Non-U.S. PMIs (C, S) released last week included Global (50.4, 50.6), China (51.6, 51.5), India (57.4, 56.9), Eurozone (47.6, 48.7), and the UK (50.7, 50.9).
• October’s JOLT Survey reported 8.733M job openings, well under the consensus 9.4M expected.
• December’s U of M Consumer Sentiment Index of 69.4 was well above forecast of 61.9 and prior month of 61.3. The one-year inflation expectation decreased from 4.5% to 3.1%.